People buying homes with zero down or close to zero— having no equity in the home and then being hit by a collapsing housing bubble — is the biggest cause of the meltdown in the housing/mortgage sector. No, not lack of government regulation (one could credibly argue the opposite) and no, not the “subprime” loans. And no, not Sarah Palin, or even George Bush.
The suggestions being put forward by the administration and most media outlets—more stringent regulation of subprime lenders—would not have prevented the mortgage meltdown regardless of their merit otherwise.
So says Stan Liebowitz, professor of Economics at U. Texas, after poring over new statistical data and techniques in his Wall Street Journal article today, New Evidence on the Foreclosure Crisis.
Unfortunately, recent attempts by politicians such as Barney Frank (D., Mass.) to again artificially increase homeownership levels might delay this return to sustainable equilibrium prices.
Other government policies are likely to be even less effective in reducing foreclosures. The Obama administration’s “Making Homes Affordable” plan focuses on having the government help lower obligation ratios (the share of income devoted to house payments) down to 31% from levels somewhat above 38%. But my analysis finds that mortgages having such obligation ratios at closing did not later experience high foreclosure rates. This suggests that reducing these ratios is not likely to significantly improve the foreclosure problem.
But it sounds attractive. Liberal politicians often create massive policies and engineer all sorts of feel-good programs and say things in grandiose speeches that sound attractive and right-on to the folks who call 911 when they don’t get the crispy chicken McNuggets they ordered, but are woefully inaccurate and ineffective and are in fact dangerous solutions to problems that often don’t even exist. For example “free health care”. Sounds good; total crock.
Understanding the causes of the foreclosure explosion is required if we wish to avoid a replay of recent painful events.
And yet liberals and specifically President Obama are the ones who mendaciously claim in their telepromptered lectures that they want to (and I quote the most knavish Obama agitprop of the day) “bring science back to its rightful place”, and he and they say they rely on science with regard to the “man-made global warming”, um, “crisis”. And on so many issues science is supposedly the final judge. They don’t actually believe any of that. (Unless what they always meant was “political science”, and they actually believe “political science” is a science).
PTBC was founded by Mr. Johannesen in 2000.
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